In a bold move that challenged the basic tenets of contract formation, General Mills quietly updated its Privacy Policy on April 2 to include a mandatory, binding arbitration clause and class action waiver. And while simple updates to Internet privacy policies in the age of click-wrap agreements typically go unnoticed by the average consumer (honestly, who has time to keep up with these things, lately?), the Internet backlash was swift—thanks in part to a New York Times article, exposing the changes to the policy. And after a few days of what turned into a public relations nightmare for General Mills, it scrapped the new policy, and said that it would never enforce the arbitration clause, while still touting the “benefits” of arbitration:
We rarely have disputes with consumers—and arbitration would have simply streamlined how complaints are handled. Many companies do the same, and we felt it would be helpful. . . .
We’ll just add that we never imagined this reaction. Similar terms are common in all sorts of consumer contracts, and arbitration clauses don’t cause anyone to waive a valid legal claim. They only specify a cost-effective means of resolving such matters. At no time was anyone ever precluded from suing us by purchasing one of our products at a store or liking one of our Facebook pages. That was either a mischaracterization—or just very misunderstood.
But let’s unpack that. While it’s true that many companies have started to insert mandatory binding arbitration clauses and class action waivers into their contracts since a string of recent rulings by the Supreme Court, arbitration doesn’t “streamline” how consumer complaints are handled, nor is it “cost-effective”—at least not for consumers. The “mischaracterization” is really coming from General Mills.
The Contested “Privacy Policy”
Before we get to why General Mills is wrong about arbitration, let’s look at what the Privacy Policy actually required. Per General Mills’ newly-departed Privacy Policy and Legal Terms, you would agree to the terms by doing anything from printing a coupon to “joining [an] online community”:
These terms are a binding legal agreement (“Agreement”) between you and General Mills. In exchange for the benefits, discounts, content, features, services, or other offerings that you receive or have access to by using our websites, joining our sites as a member, joining our online community, subscribing to our email newsletters, downloading or printing a digital coupon, entering a sweepstakes or contest, redeeming a promotional offer, or otherwise participating in any other General Mills offering, you are agreeing to these terms.
Of course, your decision to do any of these things (i.e., to use or join our site or online community, to subscribe to our emails, to download or print a digital coupon, to enter a sweepstakes or contest, to take advantage of a promotional offer, or otherwise participate in any other General Mills offering) is entirely voluntary. But if you choose to do any of these things, then you agree to be bound by this Agreement.
So what? What if you voluntarily “print[ed] a digital coupon” or “subscribe[ed]” to General Mills’ e-mail newsletters?
You would have waived your right to sue General Mills, that’s what.
ANY DISPUTE OR CLAIM MADE BY YOU AGAINST GENERAL MILLS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR YOUR PURCHASE OR USE OF ANY GENERAL MILLS SERVICE OR PRODUCT (INCLUDING GENERAL MILLS PRODUCTS PURCHASED AT ONLINE OR PHYSICAL STORES FOR PERSONAL OR HOUSEHOLD USE) REGARDLESS OF WHETHER SUCH DISPUTE OR CLAIM IS BASED IN CONTRACT, TORT, STATUTE, FRAUD, MISREPRESENTATION, OR ANY OTHER LEGAL THEORY (TOGETHER, A “DISPUTE”) WILL BE RESOLVED BY INFORMAL NEGOTIATIONS OR THROUGH BINDING ARBITRATION, AS DESCRIBED BELOW.
Why the “Privacy Policy” Was Bad for Consumers
But what does “arbitration” actually mean? And what are you agreeing to if a company inserts a clause like this into your consumer contract?
Taking General Mills as an example, let’s say that a bad batch of Cheerios (manufactured by General Mills) made its way to supermarket shelves, and you purchased one of those boxes with a coupon you printed from one of General Mills’ websites. Let’s also say that you and a bunch of other people got very sick from the Cheerios. Instead of you and that group of other sick people being able to sue General Mills together, you would’ve had to arbitrate your claims, individually, pay for your own attorney, and pay other costs—such as a potential $200 filing fee. And at the end of the day, if one arbitrator found that Cheerios was negligent in one arbitration—that wouldn’t matter for your own individual arbitration—because the “arbitration [would] be confidential, and neither you nor General Mills [could] disclose the existence, content, or results of any arbitration. . . .”
So what does General Mills mean when it says that arbitration is “cost-effective”? Essentially, it would have to spend less to defend lawsuits (ranging from the negligence hypothetical I discussed above to food labeling and misrepresentation claims). But between consumers and large corporations, arbitration drives up the costs of dispute resolution for individuals with low dollar value claims—so much so that the end result is very few consumers end up actually arbitrating their claims. Essentially, arbitration clauses that prevent individuals from pursuing claims in a class action or by using other cost-sharing methods amount to what Justice Kagan recently called “less direct than an express exculpatory clause, but no less fatal.”
Would such a clause even be enforceable, though? If a company like General Mills were bold enough to argue that “liking” its Facebook page (or, joining its “online community,” or subscribing to an e-mail list) would prevent you from suing, that stance would seem fly in the face of years of precedent regarding basic contract formation. Then again, I was fairly (and wrongly) optimistic that the Supreme Court would strike down any arbitration clause making it prohibitively expensive to effectively vindicate your rights under a federal law.
What Now?
With more and more companies inserting clauses like this into their customer agreements (like Dropbox, AT&T, Chase, Match.com, Groupon, Hulu, Starbucks, and even Change.org (who, in a twist of irony, hosted a petition to tell PayPal to eliminate its forced arbitration clause not too long ago)), it may seem like a losing battle to keep and assert your right to a jury trial for corporate wrongdoing. But, as a consumer, there are a couple of things you can do.
First, read privacy policies, terms and conditions, or any customer agreement closely. If companies insert a clause you don’t agree with, add your voice to the conversation. It worked in this case with General Mills, and it also worked when Facebook tried to add an arbitration clause to its terms back in 2009.
Second, some companies allow you to “opt out” of the arbitration clause in consumer agreements if you do so within a certain period of time. If you opt out, you (and other people who also opted out) would likely maintain your ability to sue the company collectively or as part of a class action. Make sure you read any “opt out” language carefully.
Lastly, while it won’t affect your ability to protect your rights in a court of law, now, Senator Al Franken (D-MN) has introduced, for the fourth time,[1] the Arbitration Fairness Act, which would invalidate any arbitration agreement requiring the arbitration of employment, consumer, antitrust, or civil rights disputes. If you disagree with what General Mills and other companies have tried to do with forced arbitration, you should write your congressperson and let him/her know you that support Senator Franken’s bill.[2]
The Supreme Court has made it abundantly clear that, absent any act of Congress, arbitration of consumer disputes is here to stay. That’s something to think about when heading to the polls in November.
Sources:
[1] The Arbitration Fairness Act of 2007, S. 1792 and H.R. 3010, died in committee. Other attempts were similarly unsuccessful. See, e.g. H.R. 1020, 111th Cong. (2009); S. 931, 111th Cong. (2009); H.R. 1873, 112th Cong. (2011); S. 987, 112th Cong. (2011).
[2] The companion bill introduced in the House by Representative Henry Johnson (D-GA) is H.R. 1844.
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